Emerging Trends in Payment Systems and Challenges-
Inaugural address by Dr K. C. Chakrabarty, Deputy Governor, RBI at Banknet’s 7th Annual Conference on Payment Systems at Mumbai on Jan 19, 2011

January 19, 2011:

It is a pleasure and privilege to be here at the Banknet’s 7th Annual Conference on Payment Systems. The theme of today’s conference – ‘Moving to next generation payment systems & solutions’ - is fitting especially at a time when the banking industry is going through a transitional phase of broadening, deepening and strengthening the financial services available to the masses. I take this opportunity to congratulate Banknet for providing this platform for the banks, the IT industry and other stakeholders to interact in an attempt to outperform the global benchmarks and in ensuring greater reach of the banking sector amongst the masses.

2. An efficient and well run payment system is sine-qua-non for the efficient functioning of any economy. The smooth functioning of the market infrastructure for enabling payment and settlement systems is essential for market and financial stability, as also for economic efficiency, and for the smooth functioning of financial markets. The central bank plays a crucial role by providing the ultimate settlement asset in the form of central bank money.

3. The importance of a well run payment system was recognised in its entirety as the financial crisis of 2008 unfolded. But we need to recognise that the financial crisis also brought to the fore another important lesson. The financial sector and the payment and settlement system infrastructure have to be subservient to the real sector and no country can attempt to reverse it as it would be akin to the classical case of putting the cart before the horse or the tail wagging the dog. The euphoria of financial alchemy might have created a mirage of the financial sector existing on its own; but the reality is different. Financial sector is like a wheel which derives its strength and resilience from the real economy which is the engine of growth. It is this engine which drives the financial sector. Smooth running of these wheels calls for an efficient payment system which is safe, secure and efficient, thereby, enabling faster and safer movement of funds in the economy. The legislation of the PSS Act in India has given a boost to the confidence in the Indian payment system.

4. The topic of my address today - ‘Emerging Trends in Payment Systems and Challenges’- is a dynamic one. Although banks are major players in this arena, there are non-banks players also and any discussion on this would be incomplete without including them. My speech would, therefore, cover payment products provided both by banks and non-banks. Let me share some thoughts on (i) initiatives in electronic payment systems, (ii) other payment products & payment channels and (iii) challenges for banks and regulators.

Initiatives in electronic payment systems

5. Electronic payment products are expected to provide speedier, cheaper and hassle free payment experience to customers in comparison to traditional paper based payment instruments. The evolution of electronic payment products in the country have progressed through two main phases - (i) introductory phase and (ii) rationalization phase. During the introductory phase, electronic products like ECS and EFT were introduced the country by Reserve Bank of India. These systems were decentralized serving the population of specific areas. Straight through pan-India coverage was not provided by these systems. The focus of Reserve Bank of India during the rationalization phase has been to introduce centralized payment solutions. This coincided with the implementation of Core Banking Solutions/ centralized liquidity management solutions in banks. The RTGS, NEFT and NECS provided settlement at a central location.

6. The vision for the next phase was set out in the ‘Vision Document’ on Payment and Settlement Systems for the year 2009-2012. The document clearly identifies the new frontiers and a road map for implementation of new projects. The vision includes implementation of a new RTGS system which would provide additional features including that for liquidity management, India MoneyLine – a 24x7 system for one-to-one funds transfers, India Card – a domestic card initiative, redesigned ECS to function as a truly Automated Clearing House (ACH) for bulk transactions, and mobile payments settlement network.

7. The growing trend in the usage of various modes of payment is a clear indication of the momentum acquired in the area of payment systems.

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NOTE: Banknet Conferences are one of the largest organizers of Banking and Technology Conferences from India. Banknet Conferences organizes series of highly focused conferences, seminars and workshops, which provide a platform for knowledge sharing and networking for the professionals. Being part of "Banknet Group" it has access to relevant industry research, information and large database of professionals. More than 700 Financial Institutions / Companies from 24 countries had been represented at Banknet Conferences. This included delegates from nearly every major bank in India. Banknet Conferences had been supported by more than 100 major IT Companies and Financial Institutions from 11 countries. For more ......Click Here

Nearly 100 banks & IT Cos participated at Banknet’s 7th Annual Conference on Payment Systems at Mumbai on Jan 19, 2011.. Now in its 7th year, Banknet's Annual Conference on Payment Systems is the largest payments event in India and has gone from strength to strength. It has on average attracted around 300 senior executives from around the globe. ...Click Here

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